An investment is something that has intrinsic value, not speculative value. Photograph: Anadolu Agency/Getty Images

Ive been watching this bitcoin situation for a few years, assuming it would just blow over.

But a collective insanity has sprouted around the new field of cryptocurrencies, causing an irrational gold rush worldwide. It has gotten to the point where a large number of financial stories and questions in my inbox ask whether or not to invest in BitCoin.

Lets start with the answer: no. You should not invest in Bitcoin.

The reason why is that its not an investment; just as gold, tulip bulbs, Beanie Babies, and rare baseball cards are also not investments.

These are all things that people have bought in the past, driving them to absurd prices, not because they did anything useful or produced money or had social value, but solely because people thought they could sell them on to someone else for more money in the future.

When you make this kind of purchase which you should never do you are speculating. This is not a useful activity. Youre playing a psychological, win-lose battle against other humans with money as the sole objective. Even if you win money through dumb luck, you have lost time and energy, which means you have lost.

Investing means buying an asset that actually creates products, services or cashflow, such as a profitable business or a rentable piece of real estate, for an extended period of time. An investment is something that has intrinsic value that is, it would be worth owning from a financial perspective, even if you could never sell it.

To answer why bitcoin has become so big, we need to separate the usefulness of the underlying technology called blockchain from the mania of people turning bitcoin into a big dumb lottery. Blockchain is simply a nifty software invention (which is open-source and free for anyone to use), whereas bitcoin is just one well-known way to use it.

Imagine that someone had found a cure for cancer and posted the step-by-step instructions on how to make it online, freely available for anyone to use.

Now imagine that the same person also created a product called Cancer-Pill using their own instructions, trade marked it, and started selling it to the highest bidders.

I think we can all agree a cure for cancer is immensely valuable to society (blockchain may or may not be, we still have to see), however, how much is a Cancer-Pill worth?

Our banker goes on to explain that the first Cancer-Pill (bitcoin) might initially see some great sales. Prices would rise, especially if supply was limited (just as an artificial supply limit is built into the bitcoin algorithm).

But since the formula is open and free, other companies quickly come out with their own cancer pills. Cancer-Away, CancerBgone, CancEthereum, and any other number of competitors would spring up. Anybody can make a pill, and it costs only a few cents per dose.

Yet imagine everybody starts bidding up Cancer-Pills to the point that they cost $17,000 each and fluctuate widely in price, seemingly for no reason. Newspapers start reporting on prices daily, triggering so many tales of instant riches that even your barber and your massage therapist are offering tips on how to invest in this new asset class.

Bitcoin (AKA Cancer-Pills) has become an investment bubble, with the complementary forces of human herd behavior, greed, fear of missing out, and a lack of understanding of past financial bubbles amplifying it.

To better understand this mania, we need to look at why bitcoin was invented in the first place.

As the legend goes, in 2008 an anonymous developer published a white paper under the fake name Satoshi Nakamoto. The author was evidently a software and math person. But the paper also has some in-built ideology: the assumption that giving national governments the ability to monitor flows of money in the financial system and use it as a form of law enforcement is wrong.

This financial libertarian streak is at the core of bitcoin. Youll hear echoes of that sentiment in all the pro-crypto blogs and podcasts.

The sensible-sounding ones will say: Sure the G20 nations all have stable financial systems, but bitcoin is a lifesaver in places like Venezuela where the government can vaporize your wealth when you sleep.

The harder-core pundits say: Even the US Federal Reserve is a bunch a crooks, stealing your money via inflation, and that nasty fiat currency they issue is nothing but toilet paper!

Its all the same stuff that people say about gold another waste of human investment energy.

Government-issued currencies have value because they represent human trust and cooperation. There is no wealth and no trade without these two things, so you might as well go all in and trust people.

The other argument for bitcoins value is that there will only ever be 21m of them, and they will eventually replace all other world currencies, or at least become the new gold, so the fundamental value is either the entire worlds GDP or at least the total value of all gold, divided by 21m.

Bitcoin has none of these things, and even safely storing it is difficult. Bitcoin exchanges such as Mt Gox in Japan, Bitfinex and various other wallets and exchanges have been hacked.

The second point is crucial. Bitcoin is only valuable if it truly becomes a critical world currency. In other words, if you truly need it to buy stuff, and thus you need to buy coins from some other person in order to conduct important bits of world commerce that you cant do any other way. Right now, speculators are the only people driving up the price.

A speculative cult currency like bitcoin is only valuable when you cash it out to a real currency, like the US dollar, and use it to buy something useful like a nice house or a business. When the supply of foolish speculators dries up the value evaporates often very quickly.

A currency should also not be artificially sparse. It needs to expand with the supply of goods and services in the world, otherwise we end up with deflation and hoarding. It helps to have the Federal Reserve system and other central banks guiding the system.

Finally, nothing becomes a good investment just because its been going up in price lately.

The worlds governments are not going to let everyone start trading money anonymously and evading taxes using bitcoin. If cryptocurrency does take off, it will be in a government-backed form, like a new Fedcoin. Full anonymity and government evasion will not be one of its features.

The cryptocurrency bubble is really a repetition of the past. This is a known bug in our operating system, and we have designed some parts of our society to protect us against it.

These days, stocks in the US are regulated by the Securities and Exchange Commission, precisely, because in the olden days, there were many stocks issued that were much like bitcoin, marketed to unsophisticated investors as a get-rich-quick scheme. The very definition of this investor is: Being more willing to buy something the more its price goes up.

Dont be one of these fools.

A version of this post originally appeared on the blog mrmoneymustache.com, where financial blogger Mr Money Mustache (Pete Adeney) writes about how to live a frugal yet badass life of leisure.

The value of cryptocurrencies is rising fast. But is it sustainable? And how does it work, anyway? These questions, and many more, answered

The money has become too much to ignore and so bitcoin and cryptocurrencies are back in the news. You may have heard about Ethereum, a cryptocurrency that has risen in value by more than 2,500% over the course of 2017. Or maybe youve heard about one ofthe many smaller cryptocurrenciesthat raised hundreds of millions of dollars in the first few days they were on sale, during their initial coin offering. Or youve just spotted that bitcoin, which made headlines in 2013 for hitting a high of $200, is now worth nearly $7,000 (5,250), making a lot of people very rich in the process.

Are these cryptocurrencies simply speculative bubbles or will they actually transform our financial system? Its time to answer afew common questions about this new technology and assess whether a lot of people have just pulled off the investment of their lifetime or made a hugemistake.

What actually is bitcoin?

Bitcoin is a cryptocurrency, the first and still the biggest example of its type. At its core, its a new form of digital asset, created through a cannycombination of encryption (the same technology that protects WhatsApp from eavesdropping) and peer-to-peernetworking (which allowed music piracy to blossom in the 00s through services such asKazaa).

If you own a bitcoin, what you actually control is a secret digital key you can use to prove to anyone on the network that a certain amount of bitcoin is yours.

If you spend that bitcoin, you tell the entire network that you have transferred ownership of it and use the same key to prove that you are really you. In that respect, your key is similar to a password that allows you access to your money, except with no possibility of resetting your key if you lose it. Anyone else who manages to discover your key would gain total, irreversible control over your cash. The history of all the transactions made is a lasting record of who ownswhich bitcoin: that record is called theblockchain.

What are its advantages over money created by central banks?

Bitcoin advocates will point to a number of possible advantages, from the ability to use the blockchain to track things other than simple money to the built-in support for smart contracts, which execute automatically when certain conditions are met.

But the biggest advantage, and the only one everybody agrees on, is that bitcoin is decentralised and so extremely resistant to censorship.

Although its possible to observe a bitcoin payment in process, its not practicably possible to stop it. That makes it radically different from conventional banking, where banks can, and do, intervene to freeze accounts, vet payments for money laundering or enforce regulations. That has made it a haven for activities from cybercrime and drug trading to enabling international payments to closed economies and supporting radically off-grid living.

Some had a very defined goal. Filecoin aims to produce a sort of decentralised Dropbox; as well as simply telling the network that you have some Filecoins, you can tell it to store some encrypted data and pay Filecoins to whoever stores it on their computer.Why would you want that? Well, it again comes back to censorship resistance. If you store something on your Dropbox that the company doesnt like, it can just delete the data and ban you. With Filecoin, its impossible to tell whats being stored, and impossible to force the network to block any given user anyway.

Others are more nebulous. Ethereum, now the second biggest name after bitcoin, is essentially a cryptocurrency for making cryptocurrencies. Users can write smart contracts, effectively programs that can be run on the computer of any user of the network if theyre paid enough Ether tokens.Think, for instance, of offering a small sum every time someone responds to a particular signal with todays headlines: youve built a decentralised news website, then. Or you could write a small program and reward someone every time its run: that way, youve created a decentralised cloud computer.

As a category, these new cryptocurrencies are increasingly referred to as decentralised apps, or dapps, with the focus being not on the specific currency used to make the system work, but on its overall goal.It might even be best not to think of the coins that lie at their heart as currency at all: when the token could represent a services contract, a land registry record, or the right to five minutes of computing time, the analogy to pounds and dollars has rather broken down.

Few disagree with that conclusion, but some bankers point to other advantages of the technology. The blockchain concept, they say, might be useful in conventional banking too. Forget bitcoin itself and focus instead on the value of a distributed ledger. What if all the major banks replaced their normal book-keeping with one shared, but still closed, database? Might that help cut down on fraud and ensure a more level playing field?

And then, of course, there are the advantages of bitcoin that conventional banking cant hope to compete with – and doesnt want to. Can a shadow currency exist purely on the back of drug dealing and cybercrime? Quite possibly: both are big businesses, and neither shows any sign of going away.

Others have been based on the background discussion around cryptocurrencies at the time: leading thinkers such as Hal Finney and NickSzabo were named, on the basis of similar areas of research. Both mendenied being Nakamoto and pointed out that they were active under their own names at the time bitcoin was launched, with Finney (who died in2014) being the currencys secondever user.

Since then, there have been no other major names linked to Nakamotos identity and no action on the bitcoin holdings linked to his account, currently worth around $7bn. It is possible the world may never know who invented bitcoin. For many in the field, thats how it should be.

The virtual currencys success shows the continuing absence of rely on conventional banking following the credit crunch

W hen in charge of Wall Street’s most significant bank calls a bubble, the world undoubtedly stays up and listens, albeit with a sense of traditionally weighted paradox: obviously a financial investment bank employer would identify catastrophe after his market commanded the last one. Jamie Dimon, the president of JP Morgan, stated recently that the ascendancy of the virtual currency bitcoin — which has actually increased in cost from simply over $2 in 2011 to more than $4,000 at points this year– advised him of tulip fever in 17th-century Holland . “It is even worse than tulip bulbs,” he stated. “It might be at $20,000 prior to this occurs, however it will ultimately explode. I am simply stunned that anybody cannot see it for exactly what it is.”

Dimon’s remarks are an open invite for derision from those who, appropriately, explain that although JP Morgan might be leading of the Wall Street stack, that load is far from being the ethical high ground. Under Dimon’s management, it has actually concurred a $13bn settlement with United States regulators over offering dodgy home mortgage securities– the instruments behind the credit crunch– and its altercations with guard dogs consist of a $264m fine in 2015 for employing the kids of Chinese authorities in order to win rewarding company in return.

But it does not make him incorrect. Even one of the most standard description of bitcoin– an intellectual test on a par with explaining a collateralised debt commitment– generates psychological images of a digital back-alley shell video game. A bitcoin is a cryptographic option to an intricate formula. It is not as recognisable to you or me as a system of worth as, state, a dollar costs or a reward conker. There is no main authority verifying the development of bitcoins– rather, they are tape-recorded on a public electronic journal called a blockchain. If you relate to the Bank of England as an all-powerful insurance provider for the pound, there is no such organization behind bitcoin.

This absence of a main authority is among the reasons that Dimon cavilled in such strong terms recently. In the interstices of uncontrolled financing prowl ne’er-do-wells.

“If you were a drug dealership, a killer, things like that, you are much better off doing it in bitcoin than United States dollars,” he stated. “So there might be a market for that, however it would be a minimal market.”

But a few of the viewed defects behind bitcoin that alarm Dimon– no main authority, a public journal of deals– indicate the structures of a brand-new monetary facility. In his jargon-busting lexicon of financing How to Speak Money, the author John Lanchester explained how the high priests of ancient Egypt managed farming– and by extension the economy– through a carefully secured flood measurement system called a nilometer that was concealed behind a load of gibberish. Dimon, a contemporary high priest, deals with a competing worth system in bitcoin. It has no temple, no main authority and utilizes a rubric over which he has no control. To puts it simply, it is an alternative monetary facility, whose appeal is inextricably related to the ebbing of rely on the international system that was set off by the credit crunch.

If bitcoin stops working, or is challenged, another system will increase to take its location, without the imprimatur of Dimon or his peers around the altar.

First-time purchasers are careful: this rate increase might simply be the start

House owners, and potential home owners, beware. Modification is coming. The bulk on the Bank of England’s financial policy committee versus raising rate of interest appears substantial, verified at 7-2 recently. The language is tightening up around the country’s financial resources.

Spare capability in the economy– unfilled tasks and unspent cash– is being whittled away quicker than formerly believed and inflation is still most likely to overshoot its 2% target over the next 3 years. Yes, wage development is running listed below an inflation rate that has actually now struck 2.9%, however all indications now indicate that 7-2 split turning the other method come November.

As the Bank stated, “some withdrawal of financial stimulus is most likely to be proper over the coming months”. This was firmed up the following day by Gertjan Vlieghe, formerly the most anti-rise MPC member, when he stated the bank was “approaching the minute” for a boost.

Market punters now believe there is a 42% opportunity of an increase in November, and more than 50% in December. The present split on the MPC masks the weighing of compromises– in between financial development and inflation, post-referendum stability and suppressing customer financial obligation– which is close and ever fragile to a tipping point.

A rate increase from 0.25% at present to 0.5% will be no catastrophe and would simply represent a go back to the previous record low, which had actually lasted from 2009 to the EU vote. Exactly what ought to hone debtors’ minds is the idea of additional boosts– as hinted by Vlieghe. Inflation stays stubbornly high; something will need to be done to temper a customer loaning rise growing at 10% a year.

Households may deal with a relocate to 0.5%, however if a rate boost augurs a continual relocation versus inexpensive loaning and consistent inflation, then a broader rethink of aspirations, from getting even more up the real estate ladder to purchasing a brand-new cars and truck, will be required. And for those not on the real estate ladder, hopes of an action up might be snuffed out completely.

Disney hopes its Star Wars option will utilize the force sensibly

Disney’s option of imaginative skill over the last few years has actually been impressive, having actually handed the Avengers franchise to Joss Whedon and used Lin-Manuel Miranda to co-write the music for Moana. Its choices over the Star Wars universe have actually deciphered of late.

The director of Rogue One, Gareth Edwards, was sidelined throughout reshoots, while the directing duo behind the brand-new Han Solo movie, Phil Lord and Christopher Miller, were fired completely quickly prior to shooting ended up. Most just recently, Jurassic World helmer Colin Trevorrow was tugged off the last Star Wars instalment prior to recording started.

Last week, Disney revealed it was handing the last movie in the current Star Wars trilogy to JJ Abrams, the developer of Lost and director of The Force Awakens, the movie that introduced this Jedi triptych. Abrams is a conservative option, by Disney’s current requirements. Exactly what the studio requires right now is a safe set of hands on the lightsaber.